The ICMA Covered Bond Investor Council (CBIC) is setting up a new working group in response to the rise of non-traditional covered bond structures, with the group aiming to engage with issuers and index providers, and to help investors decide on how to treat “covered bond look-alikes”, after which the group is named.

The new group, dubed Cola in short, will be chaired by Ralf Burmeister, senior portfolio manager for covered bonds at Deutsche Asset & Wealth Management, and is open to all investors with a dedicated interest in the covered bond market.

The launch of the new working group comes against a backdrop of recent growth in the covered bond market, including in terms of diversity and the range of products, according to the ICMA CBIC, which wants to keep up with these developments.

“This group will deal with existing and, if and when the need arises, new and innovative covered bond structures,” said the investor council. “The aim of the working group is to increase the understanding of the nature of the specific innovation and to put it into context within already established structures and/or legislation.”

The move to set up the working group comes after Commerzbank in February became the first major European bank to launch an SME backed covered bond, triggering an intense debate about whether it should bear the covered bond name. Discussions in Austria and Italy about legislative backed SME covered bonds, issuance thereof already by Turkish banks, and plans for pass-through covered bonds by NIBC (see separate article) have been adding to a sense of increasing diversification in the covered bond market and discussion about the implications thereof for the market.

In a statement released yesterday (Wednesday), the CBIC said that the Cola working group does not have as its ultimate goal the development of a definition of what constitutes a covered bond. Instead, the aim is to “have a comprehensive set of criteria at hand for investors to decide whether a new product that calls itself a covered bond is eligible for their individual covered bond portfolios/mandates”.

“Accordingly, we call our new working group Cola – covered bond look alike,” it said.

In addition to engaging with issuers, the new working group is also being established with the aim of entering into a dialogue with the relevant bond index providers when it comes to classifying new products, said the CBIC.